Driving retail universe coverage remains a priority for FMCG firms. Several firms are driving aggressive outlet addition agendas across regions. Even firms considered the gold standard in direct distribution (Hindustan Unilever: 3.2 million, ITC: 2 million, Colgate: 1.5 million, Marico: 0.9 million) are driving coverage initiatives in their distribution system. Reaching outlets directly and reducing wholesale dependence has three critical benefits:
Improving outlet sell-in
Increasing outlet throughput by range expansion
Building a platform for growth – ability to succeed in new product/category entries
This becomes critical for firms with a modest direct distribution.
Tata Strategic’s research shows that cost-to-serve viability is one of the biggest challenges faced by firms in driving retail expansion. The outlets added by any coverage expansion drive typically have throughputs much lower than existing outlets. Hiring additional salesmen to service these new outlets increases the distributor’s cost-to-serve. This will negatively impact their return on investment (RoI) leading to escalating pressure from distributors to provide subsidies.
Sales leadership of most FMCG firms interviewed during a recent Tata Strategic study said their salesmen cover an average of 40 outlets a day on a weekly coverage frequency, around240 outlets a month. Over several decades, this coverage norm of 40 calls per day for a distributor-salesman has remained unchanged despite changes in the outlet density, information technology and means of transportation.
Tata Strategic’s research shows that huge coverage gains can be unlocked at a distributor point by weeding out several inefficiencies in the current sales process, without the need for additional salesmen. Depending upon the type of distribution network, current adoption of technology and existing quality of coverage, firms can use one or more of the following levers for expanding their coverage.
More customer-facing time Decreasing the non-productive activities of a salesman: FMCG salesmen today spend 10-25 per cent of their time at distributor points for order entry, collection money reconciliation, attendance, morning meetings and travelling to and from distributor point to market. Most also spend 15-30 per cent of their time travelling between outlets and from one area to another. Removing these unproductive activities by multiple interventions will enable more customer-facing time for a salesman which can lead to a coverage increase of up to 70 per cent.
Decreasing the non-productive calls of a salesman: The average productive calls of an FMCG salesman are 55-60 per cent. Not all outlets place an order every week. Analysing this order behaviour can be used to intelligently re-structure the outlet visit frequency without affecting sales. The ordering pattern of outlets across the four weeks in a month varies significantly depending on outlet type. For instance, at an outlet placing 3-4 orders in a month, these orders are not evenly distributed across weeks and a few orders are just top-up orders to replenish sold-off inventory from the outlet. An alternative order-taking mechanism can be deployed for such orders at select set of outlets. The bandwidth thus released can be used to cover up to 50 per cent more outlets per salesman.
Using both these levers, firms can achieve a coverage increase of up to 120 per cent without hiring additional salesmen. Since the new outlets added are likely to have throughputs lower than existing outlets, the retail sales upside would be up to 70 per cent.
Thus, by re-structuring their current sales process, firms can break the pattern and utilise the same salesman to cover additional outlets. Reducing the non-productive activities of a salesman will enable him to cover up to 70 per cent more outlets per day. Simultaneously, analysing outlets’ order pattern to change visit frequency to fortnightly for a select set of outlets will enable the salesman to cover up to 50 per cent more outlets in the month. Tata Strategic’s research shows that firms can thus achieve up to 2.2 times of existing coverage without additional salesmen thus driving a retail sales upside of up to 70 per cent viably.